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Quo Vadis Croatia? The Interplay of Institutions, Interests and Ideas

Part of the New Perspectives on South-East Europe book series (NPSE)

Abstract

The first half of our final chapter gives a brief overview of previous chapters. On the other hand, the second half deals with institutions, interests and ideas and how they mutually interact. This is important since underperforming institutions serve as one of key ingredients for explaining economic stagnation and divergence in Croatia. But what explains the emergence of these ill-suited institutions? We add interests and dominant ideas to our debate. We claim that EBRD data, which we use at length, largely explain that interests alone cannot provide the full explanations of Croatia’s institutional and economic underperformance, despite their importance. Ideas matter a lot in that regard. Even more, they matter when we observe the potential avenue for change in Croatia. Fresh ideas might spearhead the reconceptualization of vested interests and unlock institutional gridlock.

Keywords

  • SOEs State-owned Enterprises (SOEs)
  • Croatian National Bank (CNB)
  • Monetary policyMonetary Policy
  • Public Debtpublic Debt
  • Interest Groupsinterest Groups

These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Fig. 17.1
Fig. 17.2

Notes

  1. 1.

    This type of state has some semblance of durable private institutions, the formal separation of church and state, civilian control of the military and regular elections. However, what contrasts mature natural states (subtype of limited-access order) to other states termed as states with open-access order is the extent of depersonalization of political and economic institutions. Unlike open-access orders, access to institutions in limited-access orders is limited to members of the dominant coalition. Acemoglu and Robinson offer a similar account and according to their conceptualization Croatia could be categorized as a state which lacks a high degree of open economic and political institutions.

  2. 2.

    The sub-index covers effective governance, democracy and participation and the rule of law. Croatia is positioned ahead of Hungary, Slovakia, Romania and Bulgaria.

  3. 3.

    The economic quality index covers economic opportunity, foundations for growth, macroeconomic indicators, economic openness and financial sector efficiency.

  4. 4.

    LPI considers labour market flexibility, barriers to innovation, business infrastructure and entrepreneurial environment as indicators of business quality.

  5. 5.

    Respondents could air their preference by choosing one score on the scale from 1 (competition is good) to 10 (competition is harmful). For the purpose of defining a pro-competition attitude, we add only those respondents who opted for the scores between 1 and 5.

  6. 6.

    The same procedure as outlined above applies to our definition of respondents in favour of promoting private ownership.

  7. 7.

    First, social trust lowers transaction costs in law and contract enforcement. Second, it enhances cooperation and reduces collective action problem in the domain of procuring public goods. Furthermore, it also increases the credibility of public policy and boosts reform capacity. Third, social trust positively affects financial development.

  8. 8.

    Those are: trust in the government, the parliament, courts, banks and the financial system and trust in other people. In the first step we attribute the weight of 0.2 to each of our five subcategories. In the second step we multiply the weight for each subcategory with the percentage of respondents who choose modalities ‘some trust’ and ‘complete trust’. In the third step all products are added and we arrive at the total score, which is on the scale from 0 to 1.

  9. 9.

    In 2006, only 10% of Croatian respondents displayed some or complete trust to foreign investors, a percentage lower than in any other country from the CEE-10 group. Things only improved in 2016 when Croatia lagged behind Lithuania, Poland and the Czech Republic with 20% of respondents trusting foreign investors.

  10. 10.

    In that regard it is important to point to Lex Agrokor, which was passed by the Government for preventing the collapse of companies with systemic significance in April 2017 (Buckley 2017). According to many experts this represents a haphazard effort, which might serve to sacrifice Agrokor for the survival of crony capitalist structures (Bićanić 2017). The potential for concerted political pressure by 30,000 employees of Agrokor and by employees of companies supplying Agrokor, as well as corresponding economic damage, was portrayed by the HDZ-led government as something akin to system meltdown. This came in spite of the fact that Agrokor employs slightly less than 2% of the Croatian workforce and makes up only 1.8% of Croatia’s GDP (upon dividing Agrokor’s gross value-added by Croatia’s GDP) (Šonje 2017). The old adage goes that for things to stay as they are, things will have to change. The case of Agrokor has already been covered in detail in Chap. 1.

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Correspondence to Zdravko Petak .

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Petak, Z., Kotarski, K. (2019). Quo Vadis Croatia? The Interplay of Institutions, Interests and Ideas. In: Petak, Z., Kotarski, K. (eds) Policy-Making at the European Periphery. New Perspectives on South-East Europe. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-73582-5_17

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